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JP Morgan boss Jamie Dimon appears before Senate banking committee – live JP Morgan boss Jamie Dimon faces down Senate critics – as it happened
(40 minutes later)
1.30pm: Jamie Dimon will probably be happy with the way today's hearing went – apart from a few snippy responses to Jeff Merkley, the questioning was benign and in most cases the senators involved failed to probe Dimon on any weaknesses.
On the possibility of further regulation via the Volker Rule, Dimon insisted that there was no case to answer, and intertwined his response with paens to America's deep capital markets, implying that anything that detracted from them would be a bad thing.
Here's highlights from the hearing and Dimon's testimony today:
• JP Morgan Chase chief executive Jamie Dimon offered an apology for the estimated $2bn in trading losses by his bank's Chief Investment Office, saying "we feel terrible" for losing shareholders' money.
• Dimon also apologised for his earlier description of the losses as a "tempest in a teapot," saying "I was dead wrong" but maintained that he was misinformed about the scale of losses at the time.
• Senior executives responsible for the CIO's $2bn trading loss face having their bonuses and share options deducted, Dimon told the committee: "It's likely that there will be clawbacks."
• Describing his own role in establishing the bank's unit that caused the losses, Dimon said: "We made a mistake. I'm absolutely responsible. The buck stops with me."
• Questioned on the role the proposed Volker Rule would have played in stopping JP Morgan from the loss-making trades, Dimon conceded that it was "possible" such a rule may have helped.
• Dimon sparred with democratic senators Robert Menendez and Jeff Merkley over his past opposition to financial regulation and the bank's decision to receive funds from the government bailout in the wake of the financial crisis.
• Dimon later admitted that he had been informed of the change to the risk management model in the loss-making unit: "I was copied on a memo that said there was a change in the VAR model. I paid no attention to it."
• Senator Sherrod Brown of Ohio released a strongly-worded statement calling on JP Morgan to penalise those involved in the bank's trading losses:
The way for Jamie Dimon to demonstrate his seriousness about the mistakes that led to JP Morgan's $2bn trading loss is to take back the bonuses and incentive compensation from those who were involved in the failed London trades, including himself as CEO. The only way to change the culture on Wall Street is to hit people where it hurts – in the wallet. Perhaps then the big banks will think twice about taking unnecessary risks that undermine public confidence in our financial system.
1.15pm: Here's the transcript of the hottest part of today's hearing, the exchange between Democratic senator Jeff Merkley and Jamie Dimon:
Merkley: In 2008 and 2009, your company benefited from half a trillion in low-cost federal loans, $25 billion in Tarp loans, of Tarp funds. Untold billions indirectly through the bailout of AIG that helped address your massive exposure in repurchase agreements and derivatives. With all of that in mind, wouldn't JP Morgan have gone down without the massive federal intervention, both directly and indirectly in 2008 or 2009?
Dimon: I think you were misinformed and I think that misinformation is leading to a lot of the problems we're having today. JP Morgan took Tarp because we were asked to by the Secretary of Treasury of the United States of America with the FDIC in the room, head of the New York Fed, Tim Geithner, Chairman of the Federal Reserve, Ben Bernanke. We did not at that point need Tarp. We were asked to because we were told, I think correctly so that if the nine banks there, and some may have needed it, take this Tarp we can get it to all these other banks and stop the system from going down.
Merkley: I'm going to cut you...
Dimon: It is not that we did not borrow from the Federal Reserve, except when they asked us to. They said please use these facilities to make it easier for other...
Merkley: We would all like to be asked...
Dimon: And we were not bailed out by AIG, OK? If AIG itself – we would have had a direct loss of maybe $1bn or $2bn when AIG went down. And we would have been OK.
Merkley: Then you have a difference of opinion with many analysts in the situation who felt that AIG bailout did benefit you enormously. And I'm not [going to go] through that argument with you now, sir.
Dimon: They're factually wrong.
Merkley: This is not your hearing. I'm asking you to respond to questions and I also only have five minutes. So, let's agree to disagree. But I think that many analysts have reached the conclusion that if you had applied that Old Testament justice in 2008-2009, JP Morgan would have gone down and you would have been out of a job. And it goes to the enormous frustration on how many companies in the history of the planet have been offered a half a trillion dollars in low interest loans? Not many.
But the basic concept behind the Volcker firewall is that banks are in the lending business, not in the hedge fund business. And do you share that kind of basic philosophical orientation?
Dimon: We are not in the hedge fund business.
Merkley: OK. Well, I wanted to turn to the Bloomberg report of a few days ago and it reports that Jamie Dimon created the CIO, elevated Drew from treasurer to chief investment officer, had her report directly to him. Encouraged her department, which had invested mostly previously in government backed securities to seek profit by speculating on higher yielding assets such as credit derivatives, according to half a dozen former executives of the company.
That sounds like operating a hedge fund. And doing so at your direction with government insured deposits?
Dimon: Here are the facts. We have $350bn of assets in CIO. The average rating is AA-plus. The average maturity has a duration of three years, not 20 or 30. The average yield is 2.7%. Those characteristics are of a very conservative portfolio. One of the other Senators mentioned ... in addition to that, we have $150bn sitting in central banks around the world. The other Senator just pointed out that we don't make enough loans, less loans to deposits is considered conservative, not aggressive.
Merkley: So you would disagree...
Dimon: In this other area, yes I – there's a legitimate complaint.
Merkley: OK. So David Olsen, former head of credit trading said, "We want to ramp up the ability to generate profit for the firm. This is Jamie's new vision for the company." But you would fundamentally disagree that that was your instruction in building the CIO unit?
Dimon: I don't believe everything I read. I hope you don't either.
Merkley: You disagree?
Dimon: I don't know what he means.
12.48pm: Some excitement over Jamie Dimon's admission on CNBC just now that he did know about the abrupt change to the CIO value at risk model:12.48pm: Some excitement over Jamie Dimon's admission on CNBC just now that he did know about the abrupt change to the CIO value at risk model:
I was copied on a memo that said there was a change in the VAR model. I paid no attention to it.I was copied on a memo that said there was a change in the VAR model. I paid no attention to it.
Does that change anything?Does that change anything?
12.46pm: On the Volker Rule: "We should stop talking about it as binary. It's not binary," says Dimon. Reading between the lines here, Dimon's view is unitary: he's against it.12.46pm: On the Volker Rule: "We should stop talking about it as binary. It's not binary," says Dimon. Reading between the lines here, Dimon's view is unitary: he's against it.
12.37pm: Jamie Dimon's now talking to CNBC about his testimony. "No excuses but people make mistakes," says Dimon, making an excuse.12.37pm: Jamie Dimon's now talking to CNBC about his testimony. "No excuses but people make mistakes," says Dimon, making an excuse.
And that "tempest in a teapot" remark, did you lie or did you not know? Dimon takes it placidly, given that someone on TV has just asked if he was lying: "You think I would lie? I obviously believed it, I obviously didn't know."And that "tempest in a teapot" remark, did you lie or did you not know? Dimon takes it placidly, given that someone on TV has just asked if he was lying: "You think I would lie? I obviously believed it, I obviously didn't know."
Did he place too much trust in Ira Drew, the head of the CIO? "She'd earned the trust we'd placed in her... She'd done an exceptional job for a long period of time," says Dimon, but adds that "this portfolio" was somehow different and needed different risk management.Did he place too much trust in Ira Drew, the head of the CIO? "She'd earned the trust we'd placed in her... She'd done an exceptional job for a long period of time," says Dimon, but adds that "this portfolio" was somehow different and needed different risk management.
"Did you become complacent because the group was making so much money?" – an example of the incisive questioning here on CNBC. Jamie Dimon, are you too awesome?"Did you become complacent because the group was making so much money?" – an example of the incisive questioning here on CNBC. Jamie Dimon, are you too awesome?
How bad could it get? "I'm not going to tell you," says Dimon. Wait till 13 July, when we will tell the shareholders about the last quarter.How bad could it get? "I'm not going to tell you," says Dimon. Wait till 13 July, when we will tell the shareholders about the last quarter.
Give this to Dimon: he doesn't hesitate at all, even when coming out with "I'm not going to tell you."Give this to Dimon: he doesn't hesitate at all, even when coming out with "I'm not going to tell you."
12.35pm: In New York, the Guardian's Dominic Rushe gives his reaction to Jamie Dimon's testimony today:12.35pm: In New York, the Guardian's Dominic Rushe gives his reaction to Jamie Dimon's testimony today:
So in summary JP is great, regulators smegulators, Volcker is rubbish, it was all my fault but, hey what ya gonna do?So in summary JP is great, regulators smegulators, Volcker is rubbish, it was all my fault but, hey what ya gonna do?
Dimon appeared to be truly rattled only once, by senator Jeff Merkley, who really stood on his corns. Specifically – and we've seen this time and again with
Dimon – the idea that they were bailed out by the US taxpayer and JPM would have collapsed if the government hadn't propped it up. That sent Dimon into a lather and probably explains why we should all be worried.		Dimon appeared to be truly rattled only once, by senator Jeff Merkley, who really stood on his corns. Specifically – and we've seen this time and again with
Dimon – the idea that they were bailed out by the US taxpayer and JPM would have collapsed if the government hadn't propped it up. That sent Dimon into a lather and probably explains why we should all be worried.
It's hard to see how Dimon believes JPM would have made it if the US hadn't propped up the entire financial system. The way things were going, we'd be swapping chickens for cans of gas if the US government hadn't stepped in. But Dimon clearly thinks the bank was above saving and he did us all a favour by taking the money. Scary.It's hard to see how Dimon believes JPM would have made it if the US hadn't propped up the entire financial system. The way things were going, we'd be swapping chickens for cans of gas if the US government hadn't stepped in. But Dimon clearly thinks the bank was above saving and he did us all a favour by taking the money. Scary.
12.25pm: Meanwhile, JP Morgan's share price is up by a dollar today, to $34.80. So someone liked it, given that the rest of the market is down.12.25pm: Meanwhile, JP Morgan's share price is up by a dollar today, to $34.80. So someone liked it, given that the rest of the market is down.
12.13pm: We are approaching the finishing line now. One final piece of Delphic grandstanding from the committee leaders, and that's it.12.13pm: We are approaching the finishing line now. One final piece of Delphic grandstanding from the committee leaders, and that's it.
In conclusion, Dimon may have given an apology and given a mea culpa or two, but didn't give an impression that anything fundamental had changed. Mistakes were made, they couldn't have been helped – somehow, although he wouldn't detail why – but everything is now fixed.In conclusion, Dimon may have given an apology and given a mea culpa or two, but didn't give an impression that anything fundamental had changed. Mistakes were made, they couldn't have been helped – somehow, although he wouldn't detail why – but everything is now fixed.
The highlight of the whole thing was Dimon's brief, unhappy tangling over the banking sector bailout with Jef Merkeley and his insistence that JP Morgan didn't "need" Tarp funds. What's that about biting the hand that feeds you? The highlight of the whole thing was Dimon's brief, unhappy tangling over the banking sector bailout with Jef Merkley and his insistence that JP Morgan didn't "need" Tarp funds. What's that about biting the hand that feeds you?
The newspoints will be the "clawbacks" that Dimon mentioned for errant employees, and the round-and-round on the Volker Rule, although Dimon wasn't giving any ground there.The newspoints will be the "clawbacks" that Dimon mentioned for errant employees, and the round-and-round on the Volker Rule, although Dimon wasn't giving any ground there.
Still, Dimon's repeated remarks about the impossibility of catching the London Whale make very depressing listening. This wasn't rogue trading, this was a bank operating on its own account – and Dimon admitted that the CIO didn't understand what they were doing. And its own internal risk committee and models still couldn't sniff out a $2bn loss.Still, Dimon's repeated remarks about the impossibility of catching the London Whale make very depressing listening. This wasn't rogue trading, this was a bank operating on its own account – and Dimon admitted that the CIO didn't understand what they were doing. And its own internal risk committee and models still couldn't sniff out a $2bn loss.
12.10pm: Dear Jamie Dimon, would you like to agree with my talking points about the fiscal condition of the United States and use up more valuable time, asks Michael Bennet, the Democratic senator from Colorado.12.10pm: Dear Jamie Dimon, would you like to agree with my talking points about the fiscal condition of the United States and use up more valuable time, asks Michael Bennet, the Democratic senator from Colorado.
12.03pm: Responding to Senator Kay Hagen about the London Whale, Jamie Dimon says he won't go into detail because he doesn't want to reveal confidential trading information. "Some of the information that was published was accurate and some was not," says Dimon, which explains nothing.12.03pm: Responding to Senator Kay Hagen about the London Whale, Jamie Dimon says he won't go into detail because he doesn't want to reveal confidential trading information. "Some of the information that was published was accurate and some was not," says Dimon, which explains nothing.
Lots of talk about Basel one, two and three, and probably four, which doesn't even exist.Lots of talk about Basel one, two and three, and probably four, which doesn't even exist.
11.51am: This is more excititng: Senator Jeff Merkley is quoting Dimon's words back at him and saying that if Dimon was right, then JP Morgan itself would have failed in 2009 and Dimon would have lost his job but for the government bailout known as Tarp.11.51am: This is more excititng: Senator Jeff Merkley is quoting Dimon's words back at him and saying that if Dimon was right, then JP Morgan itself would have failed in 2009 and Dimon would have lost his job but for the government bailout known as Tarp.
Dimon claims that his bank didn't Tarp funds and only took it because the government wanted it to. Merkeley charges that may not be true, citing analysts. Dimon claims that his bank didn't Tarp funds and only took it because the government wanted it to. Merkley charges that may not be true, citing analysts.
Dimon gets heated, telling Merkekley: "They are factually wrong." Senator Merkeley then brutally slaps him down: "Sir, this is not your hearing, I am asking you to respond to questions." Dimon gets heated, telling Merkley: "They are factually wrong." Senator Merkley then slaps him down: "Sir, this is not your hearing, I am asking you to respond to questions."
Merkeley is pressing Dimon on the bank's hedging via its CIO. "We are not in the hedge fund business," Dimon says tartly. Merkley is pressing Dimon on the bank's hedging via its CIO. "We are not in the hedge fund business," Dimon says tartly.
Now we are seeing a different side to Jamie Dimon: prickly, waspish, sniffy: "I have already sadi about synthetic credit, that's why I'm here. The buck stops with me," he asserts although buck stopping isn't much in evidence. "I have already confessed to the sins on the synthetic credit side," he repeats later – really upping the passive-aggressive tone here – as he repeats that JP Morgan's $350bn funds are conservatively managed.Now we are seeing a different side to Jamie Dimon: prickly, waspish, sniffy: "I have already sadi about synthetic credit, that's why I'm here. The buck stops with me," he asserts although buck stopping isn't much in evidence. "I have already confessed to the sins on the synthetic credit side," he repeats later – really upping the passive-aggressive tone here – as he repeats that JP Morgan's $350bn funds are conservatively managed.
When Merkeley quotes an expert's criticism, the now remarkably thin-skinned Dimon retorts: "I don't believe everything I read and I hope you don't either." Merkeley doesn't let him off and Dimon turns around and says he doesn't understand the critic. When Merkley quotes an expert's criticism, the now remarkably thin-skinned Dimon retorts: "I don't believe everything I read and I hope you don't either." Merkley doesn't let him off and Dimon turns around and says he doesn't understand the critic.
Sadly, this exchange is too short.Sadly, this exchange is too short.
11.45am: Another question about the Volker Rule and how it would have stopped this London Whale situation comes from Roger Wicker from that financial hotspot Mississippi.11.45am: Another question about the Volker Rule and how it would have stopped this London Whale situation comes from Roger Wicker from that financial hotspot Mississippi.
Dimon goes off on what is obviously prepared rant about how fantastic the US capital markets are and – by implication – the Volker Rule would some how affect that. "Don't throw the baby out with the bathwater," says Dimon, in another helping from the big book of CEO cliches. (But what about throwing the devil out with the detail-bathwater?)Dimon goes off on what is obviously prepared rant about how fantastic the US capital markets are and – by implication – the Volker Rule would some how affect that. "Don't throw the baby out with the bathwater," says Dimon, in another helping from the big book of CEO cliches. (But what about throwing the devil out with the detail-bathwater?)
As part of his rant, Dimon takes about America's greatness, mom, apple pie and surely comes within an inch of mentioning baseball. "The cost of doing a corporate bond is a tenth of what it was 10 years ago," states Dimon. Yes but 10 years ago the credit markets weren't in the toilet and the US economy had something know as "inflation".As part of his rant, Dimon takes about America's greatness, mom, apple pie and surely comes within an inch of mentioning baseball. "The cost of doing a corporate bond is a tenth of what it was 10 years ago," states Dimon. Yes but 10 years ago the credit markets weren't in the toilet and the US economy had something know as "inflation".
11.42am: Herb Kohl of Wisconsin wonders why JP Morgan doesn't act as quickly on mortgage issues as it does when its CIO gets into trouble. Send your constituents' problems along to me and I'll fix them says Dimon. How helpful.11.42am: Herb Kohl of Wisconsin wonders why JP Morgan doesn't act as quickly on mortgage issues as it does when its CIO gets into trouble. Send your constituents' problems along to me and I'll fix them says Dimon. How helpful.
11.40am: The air is going out of this hearing somewhat, after Senator Jon Tester ignored the business at hand and instead asked a string of questions about the failed MF Global bank.11.40am: The air is going out of this hearing somewhat, after Senator Jon Tester ignored the business at hand and instead asked a string of questions about the failed MF Global bank.
11.35am: Akshat Tewary, one of the founders of Occupy the SEC, has thoughts on Sherrod Brown's point regarding the size and complexity of JP Morgan:11.35am: Akshat Tewary, one of the founders of Occupy the SEC, has thoughts on Sherrod Brown's point regarding the size and complexity of JP Morgan:
Senator Brown raises a good point re: that Too Big to Fail banks are Too Big to Regulate.Senator Brown raises a good point re: that Too Big to Fail banks are Too Big to Regulate.
Forgetting the CIO office's activities for a minute, it's important to consider that JP Morgan may be an antitrust violator due to its inordinate size and influence in the banking industry, which is essentially an oligopoloy.Forgetting the CIO office's activities for a minute, it's important to consider that JP Morgan may be an antitrust violator due to its inordinate size and influence in the banking industry, which is essentially an oligopoloy.
Occupy the SEC has some remarkably good pre-buttal of Dimon's testimony, here [pdf]:Occupy the SEC has some remarkably good pre-buttal of Dimon's testimony, here [pdf]:
[We] need hard-and-fast rules, like a strictly-defined Volcker firewall that would definitely separate commercial banking from proprietary trading (along the lines of the similar Vickers ring-fencing regime that is gaining traction in Europe). In Macbeth, Shakespeare warned of "Vaulting ambition, which o'erleaps itself and falls on the other." We need a simple structural wall, like the one potentially erected by the Volcker Rule, to serve as a check on bankers' vaulting ambitions.[We] need hard-and-fast rules, like a strictly-defined Volcker firewall that would definitely separate commercial banking from proprietary trading (along the lines of the similar Vickers ring-fencing regime that is gaining traction in Europe). In Macbeth, Shakespeare warned of "Vaulting ambition, which o'erleaps itself and falls on the other." We need a simple structural wall, like the one potentially erected by the Volcker Rule, to serve as a check on bankers' vaulting ambitions.
11.28am: The Guardian's Dominic Rushe is watching Dimon's performance:11.28am: The Guardian's Dominic Rushe is watching Dimon's performance:
As you'd expect from Dimon, he's contrite but hasn't changed his views. He's still against the Volcker Rule's attempts to stop "portfolio hedging". Volcker wants to restrict hedging in systemically important banks like JPM by limiting so that they have to match hedges to specific risks they take. So if they make a bet on the Euro going down they can hedge against it with a bet that would soften the blow if they are wrong. Dimon wants "portfolio hedging" where they can make a series of hedges meant to protect against a portfolio of risks.As you'd expect from Dimon, he's contrite but hasn't changed his views. He's still against the Volcker Rule's attempts to stop "portfolio hedging". Volcker wants to restrict hedging in systemically important banks like JPM by limiting so that they have to match hedges to specific risks they take. So if they make a bet on the Euro going down they can hedge against it with a bet that would soften the blow if they are wrong. Dimon wants "portfolio hedging" where they can make a series of hedges meant to protect against a portfolio of risks.
Dominic points to a letter sent to regulators by senators Carl Levin and Jeff Merkley, some of Dimon's sharpest critics, on portfolio hedging:Dominic points to a letter sent to regulators by senators Carl Levin and Jeff Merkley, some of Dimon's sharpest critics, on portfolio hedging:
We again urge you to remove ill-advised loopholes and implement a strong Volcker Rule without further delay... In recent days, we've seen exactly what 'portfolio hedging' might mean. This 'JP Morgan Loophole' is big enough to drive a 'London Whale' through.We again urge you to remove ill-advised loopholes and implement a strong Volcker Rule without further delay... In recent days, we've seen exactly what 'portfolio hedging' might mean. This 'JP Morgan Loophole' is big enough to drive a 'London Whale' through.
11.20am: Sherrod Brown suggests that regulators and JP Morgan itself simply couldn't keep a handle on the bank's CIO – which he claims would be one of the biggest banks in America if it stood alone. Which has some scary implications.11.20am: Sherrod Brown suggests that regulators and JP Morgan itself simply couldn't keep a handle on the bank's CIO – which he claims would be one of the biggest banks in America if it stood alone. Which has some scary implications.
"Too big to fail banks are too big to manage and too big to regulate," says @SenSherrodBrown. #JPMorgan #dimon #business"Too big to fail banks are too big to manage and too big to regulate," says @SenSherrodBrown. #JPMorgan #dimon #business
Mike Johanns of Nebraska appears to be making a pitch for JP Morgan to move some business to his home state. "You're just huge," he says, admiringly.Mike Johanns of Nebraska appears to be making a pitch for JP Morgan to move some business to his home state. "You're just huge," he says, admiringly.
Otherwise Johanns appears to be reading off the back of a cereal packet.Otherwise Johanns appears to be reading off the back of a cereal packet.
11.15am: Now it's Democratic senator Sherrod Brown – your 2016 or 2020 Democratic presidential nominee, maybe – who has a voice like a knife scraped across a dinner plate.11.15am: Now it's Democratic senator Sherrod Brown – your 2016 or 2020 Democratic presidential nominee, maybe – who has a voice like a knife scraped across a dinner plate.
Brown notes that he doesn't want his constituents to lose their jobs because of some rogue trading in London. He is asking some detailed questions about how regulators reacted. Did the regulator, the OCC, know about the so-called London Whale trades before it was first reported. Dimon repeats his point that the bank gave the wrong information because they were misinformed themselves internally. But regulators were called immediately when the bank itself found out, Dimon says.Brown notes that he doesn't want his constituents to lose their jobs because of some rogue trading in London. He is asking some detailed questions about how regulators reacted. Did the regulator, the OCC, know about the so-called London Whale trades before it was first reported. Dimon repeats his point that the bank gave the wrong information because they were misinformed themselves internally. But regulators were called immediately when the bank itself found out, Dimon says.
"Is five regulators in London enough?" asks Brown, mentioning the regulators based inside JP Morgan's London trading operation. "I don't know the answer," says Dimon, "but in this day and age," you know the internet and stuff, they could be anywhere."Is five regulators in London enough?" asks Brown, mentioning the regulators based inside JP Morgan's London trading operation. "I don't know the answer," says Dimon, "but in this day and age," you know the internet and stuff, they could be anywhere.
11.11am: Now it's time for Professor Mad McMad, or Senator Jim DeMint as he is also known, who really doesn't care about the topic at hand except as an opportunity to push his own bandwagon.11.11am: Now it's time for Professor Mad McMad, or Senator Jim DeMint as he is also known, who really doesn't care about the topic at hand except as an opportunity to push his own bandwagon.
DeMint bizarrely compares JP Morgan's $2bn loss with the "loss" as he terms it that Washington's federal government makes every day. Hold on, Jim DeMint, is spending on the US military, Medicare, and so on, a loss, in the same way as a derivatives trade?DeMint bizarrely compares JP Morgan's $2bn loss with the "loss" as he terms it that Washington's federal government makes every day. Hold on, Jim DeMint, is spending on the US military, Medicare, and so on, a loss, in the same way as a derivatives trade?
DeMint invites Dimon to complain about over-regulation, although the senator also claims that Washington can't really reproach JP Morgan for losses because of the deficit. Duh.DeMint invites Dimon to complain about over-regulation, although the senator also claims that Washington can't really reproach JP Morgan for losses because of the deficit. Duh.
Mercifully, it quickly ends.Mercifully, it quickly ends.
11.03am: Robert Menendez of New Jersey wants to know more about hedges. "Isn't that really gambling," he wonders, pondering Dimon's remarks about how the CIO's hedging morphed into something else.11.03am: Robert Menendez of New Jersey wants to know more about hedges. "Isn't that really gambling," he wonders, pondering Dimon's remarks about how the CIO's hedging morphed into something else.
"What did it morph into, Russian roulette?" asks Menendez acidly. "I don't know, it morphed into something too risky for our company," responds Dimon, giving Menendez an opportunity to go all Lady Bracknell. "Too risky?" he says archly."What did it morph into, Russian roulette?" asks Menendez acidly. "I don't know, it morphed into something too risky for our company," responds Dimon, giving Menendez an opportunity to go all Lady Bracknell. "Too risky?" he says archly.
Menendez is having a go at Dimon for his previous resistance to financial regulation and his public remarks on the subject in the past.Menendez is having a go at Dimon for his previous resistance to financial regulation and his public remarks on the subject in the past.
"Fortress Balance Sheet has a moat dug by taxpayers," Menendez points out. "It seems to me the American people are a big part of helping to make your bank healthy," he goes on. "Are you working against legitimate efforts to control the risk? Do you not think that's a fair question for the American people?""Fortress Balance Sheet has a moat dug by taxpayers," Menendez points out. "It seems to me the American people are a big part of helping to make your bank healthy," he goes on. "Are you working against legitimate efforts to control the risk? Do you not think that's a fair question for the American people?"
"We are entitled to tell you about the [regulations] that don't make sense," says Dimon, hotly."We are entitled to tell you about the [regulations] that don't make sense," says Dimon, hotly.
This is all much better.This is all much better.
10.54am: Senator Jack Reed of Rhode Island appears to have a clue, and opens by saying that this is evidence that a very strong and clear Volcker Rule is needed.10.54am: Senator Jack Reed of Rhode Island appears to have a clue, and opens by saying that this is evidence that a very strong and clear Volcker Rule is needed.
Reed pushes Dimon harder than his colleagues, and gets Dimon to essentially throw his staff under the bus, as they say. Explaining the change to the bank's value at risk model, Dimon says: "We don't as of today believe it was done for nefarious purposes," which is hardly reassuring.Reed pushes Dimon harder than his colleagues, and gets Dimon to essentially throw his staff under the bus, as they say. Explaining the change to the bank's value at risk model, Dimon says: "We don't as of today believe it was done for nefarious purposes," which is hardly reassuring.
Pushed by Reed, he goes on to describe the bank's trades: "No matter what you call it, I will not defend it. It violates common sense in my opinion."Pushed by Reed, he goes on to describe the bank's trades: "No matter what you call it, I will not defend it. It violates common sense in my opinion."
There's the headline: violates common sense.There's the headline: violates common sense.
Another intriguing remark from Dimon, when he said that "I have a hard time distinguishing" proprietary trades and hedges. Really? Hmm.Another intriguing remark from Dimon, when he said that "I have a hard time distinguishing" proprietary trades and hedges. Really? Hmm.
Reed finishes by asking Dimon directly about the Volker Rule saving JP Morgan from this type of loss. Dimon hedges (no pun intended) by saying oh well the Volker Rule hasn't been formulted formally: "I don't know what the Volcker Rule is. It hasn't been written yet." But finally he admits: "It's possible, I just don't know."Reed finishes by asking Dimon directly about the Volker Rule saving JP Morgan from this type of loss. Dimon hedges (no pun intended) by saying oh well the Volker Rule hasn't been formulted formally: "I don't know what the Volcker Rule is. It hasn't been written yet." But finally he admits: "It's possible, I just don't know."
So there's another headline: Volker Rule may have saved JPM says Dimon.So there's another headline: Volker Rule may have saved JPM says Dimon.
10.51am: My Guardian colleague Dominic Rushe spots the big problem in these types of hearings – the politicians can ask tough questions but because they don't understand either their own questions or the answers, they can't respond. Hence a wily witness can get an easy ride:10.51am: My Guardian colleague Dominic Rushe spots the big problem in these types of hearings – the politicians can ask tough questions but because they don't understand either their own questions or the answers, they can't respond. Hence a wily witness can get an easy ride:
Senator Schumer is asking the big question: "What's to stop this happening again?" Were we just lucky to find out about this, what about non-banks that get in to trouble? Dimon dodges nicely with some stuff about how much better capitalised the banks are, a pat on the back for regulators "disseminating best practices" and examining the system and then he's off the hook. No follow up.Senator Schumer is asking the big question: "What's to stop this happening again?" Were we just lucky to find out about this, what about non-banks that get in to trouble? Dimon dodges nicely with some stuff about how much better capitalised the banks are, a pat on the back for regulators "disseminating best practices" and examining the system and then he's off the hook. No follow up.
10.47am: Senator Mike Crapo of Idaho is asking about the Volker Rule and how it should be implemented. "The devil is in the detail," says Dimon, a blinding observation that has never been made in human history.10.47am: Senator Mike Crapo of Idaho is asking about the Volker Rule and how it should be implemented. "The devil is in the detail," says Dimon, a blinding observation that has never been made in human history.
What sort of hedges should be allowed, wonders Crapo. Ones that protect the bank, replies Dimon. See previous comment about the devil being in the detail.What sort of hedges should be allowed, wonders Crapo. Ones that protect the bank, replies Dimon. See previous comment about the devil being in the detail.
10.45am: On the subject of clawbacks – taking pay back from employees – Dimon tells Schumer that he's a big fan: "We can clawback even for things like bad judgment."10.45am: On the subject of clawbacks – taking pay back from employees – Dimon tells Schumer that he's a big fan: "We can clawback even for things like bad judgment."
10.42am: Senator Schumer wants to know why the bank's risk committee missed the London Whale.10.42am: Senator Schumer wants to know why the bank's risk committee missed the London Whale.
Dimon says it isn't fair for risk committee to be blamed for the losses. They couldn't have caught it, he maintains, and they were so awesome during the financial crisis that basically it wasn't humanly possible. (I paraphrase but only slightly.)Dimon says it isn't fair for risk committee to be blamed for the losses. They couldn't have caught it, he maintains, and they were so awesome during the financial crisis that basically it wasn't humanly possible. (I paraphrase but only slightly.)
10.39am: Charles Schumer is now quizzing Dimon. He's a far sharper knife but he's also not nicknamed "the Senator for Wall Street" for nothing.10.39am: Charles Schumer is now quizzing Dimon. He's a far sharper knife but he's also not nicknamed "the Senator for Wall Street" for nothing.
10.35am: Richard Shelby – sounding like a concerned family member – wonders if Jamie might be more comfortable talking to Uncle Richard behind closed doors. Dimon demurs but says he'll be more open to the bank's investors shortly.10.35am: Richard Shelby – sounding like a concerned family member – wonders if Jamie might be more comfortable talking to Uncle Richard behind closed doors. Dimon demurs but says he'll be more open to the bank's investors shortly.
The bank's attempts to hedge "changed into something I cannot publicly defend," is Dimon's final word. Gently offered the chance to describe the lessons learned, Dimon says: "No matter how good you are, how good people are," things can go wrong.The bank's attempts to hedge "changed into something I cannot publicly defend," is Dimon's final word. Gently offered the chance to describe the lessons learned, Dimon says: "No matter how good you are, how good people are," things can go wrong.
10.32am: Richard Shelby gets to ask questions in his rich Alabama accent. "What really happened?" asks Shelby. This allows Dimon to discuss how long a piece of string may or may not be.10.32am: Richard Shelby gets to ask questions in his rich Alabama accent. "What really happened?" asks Shelby. This allows Dimon to discuss how long a piece of string may or may not be.
JPM has around $150bn in cash today "invested in central banks around the world so we tend to be very conservative," says Dimon, although that tells us far more about the state of the international capital markets right now than an insight into JP Morgan investment strategy.JPM has around $150bn in cash today "invested in central banks around the world so we tend to be very conservative," says Dimon, although that tells us far more about the state of the international capital markets right now than an insight into JP Morgan investment strategy.
10.29am: Senator Johnson asks asks about the changes made to JP Morgan's vaunted risk model and oversight of the bank's chief investment office responsible for making the botched investments.10.29am: Senator Johnson asks asks about the changes made to JP Morgan's vaunted risk model and oversight of the bank's chief investment office responsible for making the botched investments.
"The CIO had done so well for so long that we got overconfident," says Dimon, which doesn't really answer the question except by saying "we were so awesome"."The CIO had done so well for so long that we got overconfident," says Dimon, which doesn't really answer the question except by saying "we were so awesome".
The way people were paid didn't "make the problem worse," says Dimon.The way people were paid didn't "make the problem worse," says Dimon.
10.26am: Tim Johnson is straight on to the London Whale "tempest in a teapot" remark of Dimon's. What was he thinking?10.26am: Tim Johnson is straight on to the London Whale "tempest in a teapot" remark of Dimon's. What was he thinking?
"When I made that statement I was dead wrong," says Dimon, "I was travelling, I was on the road". Underlings told him it was a "small issue," says Dimon. So there we are."When I made that statement I was dead wrong," says Dimon, "I was travelling, I was on the road". Underlings told him it was a "small issue," says Dimon. So there we are.
Dominic Rushe comments:Dominic Rushe comments:
Dimon must be wishing that he's never thrown out that "tempest in a teapot" comment. Johnson is asking some great questions about what he knew when and how he could be so blase about the risks being taken at the London office. He is pretty much sticking to the script, the bank was complacent, he didn't have the full picture. Nothing new yet.Dimon must be wishing that he's never thrown out that "tempest in a teapot" comment. Johnson is asking some great questions about what he knew when and how he could be so blase about the risks being taken at the London office. He is pretty much sticking to the script, the bank was complacent, he didn't have the full picture. Nothing new yet.
The new news is that he may clawback money from bankers after the bank works out exactly what went wrong. Ina Drew, who headed the unit that looked after London, was paid about $15m last year.The new news is that he may clawback money from bankers after the bank works out exactly what went wrong. Ina Drew, who headed the unit that looked after London, was paid about $15m last year.
10.25am: The American Banker sums up the coverage of Dimon's prepared remarks: "Dimon to Apologize, Blame Underlings, Tell Senators to Stuff It," which sounds about right.10.25am: The American Banker sums up the coverage of Dimon's prepared remarks: "Dimon to Apologize, Blame Underlings, Tell Senators to Stuff It," which sounds about right.
Now it's question time.Now it's question time.
10.20am: "Dimon under pressure" is the blazing headline on Bloomberg TV, which is running Dimon's testimony live, alongside a tasteful live chart of JP Morgan's share price.10.20am: "Dimon under pressure" is the blazing headline on Bloomberg TV, which is running Dimon's testimony live, alongside a tasteful live chart of JP Morgan's share price.
10.18am: Richard Shelby, the ranking Republican member of the committee, uses his remarks to bash Freddie Mac and Fannie Mae, claiming that the government-sponsored enterprises lost $200bn, chicken feed compared to JPM's $2bn. The Republicans like to blame the two GSE's for somehow causing the housing market bubble and financial collapse, even though they didn't.10.18am: Richard Shelby, the ranking Republican member of the committee, uses his remarks to bash Freddie Mac and Fannie Mae, claiming that the government-sponsored enterprises lost $200bn, chicken feed compared to JPM's $2bn. The Republicans like to blame the two GSE's for somehow causing the housing market bubble and financial collapse, even though they didn't.
Now Jamie Dimon takes centre-stage.Now Jamie Dimon takes centre-stage.
10.10am: Johnson's prepared remarks were as mentioned below. Meanwhile, here's my colleague Dominic Rushe's overview of today's testimony by Jamie Dimon, with some background of why Dimon is such a formidable figure on Wall Street:10.10am: Johnson's prepared remarks were as mentioned below. Meanwhile, here's my colleague Dominic Rushe's overview of today's testimony by Jamie Dimon, with some background of why Dimon is such a formidable figure on Wall Street:
JP Morgan's chief Jamie Dimon is probably the most remarkable banker of his generation. While rivals like Goldman Sach's Lloyd Blankfein became public enemy number one, Dimon deftly steered JP through a storm as political as it was financial.JP Morgan's chief Jamie Dimon is probably the most remarkable banker of his generation. While rivals like Goldman Sach's Lloyd Blankfein became public enemy number one, Dimon deftly steered JP through a storm as political as it was financial.
Dimon emerged as the acceptable face of Wall Street and has used his kudos to argue – often heavy handedly – against tighter regulation of the financial industry. He called the new Basel III international banking rules "anti-American." He said Paul Volcker, former chairman of the Federal Reserve and author of a rule aimed at curbing bank risk, "doesn't understand capital markets."Dimon emerged as the acceptable face of Wall Street and has used his kudos to argue – often heavy handedly – against tighter regulation of the financial industry. He called the new Basel III international banking rules "anti-American." He said Paul Volcker, former chairman of the Federal Reserve and author of a rule aimed at curbing bank risk, "doesn't understand capital markets."
Then his London office lost $2bn and counting on outsized risky bets on Europe and everything changed. Having successfully lobbied for the watering down of financial regulation, Dimon was now the prime example of why the rules needed to be beefed up.Then his London office lost $2bn and counting on outsized risky bets on Europe and everything changed. Having successfully lobbied for the watering down of financial regulation, Dimon was now the prime example of why the rules needed to be beefed up.
In May President Obama told the hosts of The View that Dimon was "one of the smartest bankers we got." If JP Morgan could lose money like this, what about the rest of them?In May President Obama told the hosts of The View that Dimon was "one of the smartest bankers we got." If JP Morgan could lose money like this, what about the rest of them?
This hearing may be about the London losses in principle but as Dimon will point out $2bn isn't a lot to JP Morgan. The bigger picture is about the regulation of Wall Street and what, if anything, has changed four years after the start of the worst financial crisis in living memory.This hearing may be about the London losses in principle but as Dimon will point out $2bn isn't a lot to JP Morgan. The bigger picture is about the regulation of Wall Street and what, if anything, has changed four years after the start of the worst financial crisis in living memory.
10.06am: Anyone wanting to follow Jamie Dimon's grilling from the comfort of their own computer can see the live stream here on the Senate committee's site.10.06am: Anyone wanting to follow Jamie Dimon's grilling from the comfort of their own computer can see the live stream here on the Senate committee's site.
10.02am: A brief kerfuffle of protest as a few people wave small signs and chant "End foreclosures now" before they are shifted out of the room by Capitol Hill security.10.02am: A brief kerfuffle of protest as a few people wave small signs and chant "End foreclosures now" before they are shifted out of the room by Capitol Hill security.
The banking committee chairman Tim Johnson is now delivering his opening remarks. Those of you puzzled by Johnson's speech should know he suffered a massive stroke in 2006 and has since made a remarkable recovery.The banking committee chairman Tim Johnson is now delivering his opening remarks. Those of you puzzled by Johnson's speech should know he suffered a massive stroke in 2006 and has since made a remarkable recovery.
Johnson points out that it was just two months ago today that Dimon, on JP Morgan's first-quarter conference call, referred to the "London Whale" derivatives trading position as a "tempest in a teapot," a comment Dimon is going to take a long time to live down.Johnson points out that it was just two months ago today that Dimon, on JP Morgan's first-quarter conference call, referred to the "London Whale" derivatives trading position as a "tempest in a teapot," a comment Dimon is going to take a long time to live down.
10am ET: JP Morgan's chief executive Jamie Dimon faces congressional critics today when he appears before the Senate banking committee investigating the disastrous derivatives trading that led to billions of dollars of losses at the bank he has run since 2005.10am ET: JP Morgan's chief executive Jamie Dimon faces congressional critics today when he appears before the Senate banking committee investigating the disastrous derivatives trading that led to billions of dollars of losses at the bank he has run since 2005.
According to his already-released prepared testimony, Dimon will give an apology of sorts before the committee, saying: "We have let a lot of people down, and we are sorry for it. We will not make light of these losses, but they should be put into perspective. We will lose some of our shareholders' money – and for that, we feel terrible – but no client, customer or taxpayer money was impacted by this incident."According to his already-released prepared testimony, Dimon will give an apology of sorts before the committee, saying: "We have let a lot of people down, and we are sorry for it. We will not make light of these losses, but they should be put into perspective. We will lose some of our shareholders' money – and for that, we feel terrible – but no client, customer or taxpayer money was impacted by this incident."
Dimon's appearance comes after JP Morgan last month revealed $2bn in losses from a string of high-risk trading in derivatives, the complex financial market. For a bank that has boasted of its stringent internal rules and safeguards, JP Morgan's trading losses reopened the controversy of Wall Street regulation that has swirled since the calamities of 2007 and 2008 that led to the financial market turmoil and recession.Dimon's appearance comes after JP Morgan last month revealed $2bn in losses from a string of high-risk trading in derivatives, the complex financial market. For a bank that has boasted of its stringent internal rules and safeguards, JP Morgan's trading losses reopened the controversy of Wall Street regulation that has swirled since the calamities of 2007 and 2008 that led to the financial market turmoil and recession.
In particular, the bank's failure of risk management raises serious questions about the financial regulations proposed and implemented since 2008, including the Dodd-Frank regulations put in place in 2010 and the "Volcker Rule" to restrict banks trading with their own funds, as was the case with JP Morgan.In particular, the bank's failure of risk management raises serious questions about the financial regulations proposed and implemented since 2008, including the Dodd-Frank regulations put in place in 2010 and the "Volcker Rule" to restrict banks trading with their own funds, as was the case with JP Morgan.
In his written testimony, Dimon argues that the bank's $350bn portfolio is managed appropriately managed by the bank's chief investment office but he will the derivatives trades that caused the losses were "poorly conceived and vetted."In his written testimony, Dimon argues that the bank's $350bn portfolio is managed appropriately managed by the bank's chief investment office but he will the derivatives trades that caused the losses were "poorly conceived and vetted."
The senators on the banking committee are likely to sniff blood. Tim Johnson, the Democrat who chairs the committee, says in his released remarks that JP Morgan's losses show "an out-of-control trading strategy with little to no risk controls that cost the company billions of dollars."The senators on the banking committee are likely to sniff blood. Tim Johnson, the Democrat who chairs the committee, says in his released remarks that JP Morgan's losses show "an out-of-control trading strategy with little to no risk controls that cost the company billions of dollars."
Johnson's remarks indicate the questioning the committee is likely to follow:Johnson's remarks indicate the questioning the committee is likely to follow:
So what went wrong? For a bank renowned for its risk management, where were the risk controls? How can a bank take on 'far too much risk' if the point of the trades was to reduce risk in the first place? Or was the goal really to make money? Should any hedge result in billions of dollars of net gains or losses, or should it be focused solely on reducing a bank's risks? As the saying goes, you can't have your cake and eat it, too.So what went wrong? For a bank renowned for its risk management, where were the risk controls? How can a bank take on 'far too much risk' if the point of the trades was to reduce risk in the first place? Or was the goal really to make money? Should any hedge result in billions of dollars of net gains or losses, or should it be focused solely on reducing a bank's risks? As the saying goes, you can't have your cake and eat it, too.
What we'll see is Dimon attempting to show contrition while defending his bank as reliable money managers and fending off calls for further regulation, especially the Volcker Rule.What we'll see is Dimon attempting to show contrition while defending his bank as reliable money managers and fending off calls for further regulation, especially the Volcker Rule.